Matahari Department Store, The Best Operator In Indonesia
Despite the heated competition from more foreign players in the market, we believe Matahari would remain the winner. Its strong private brands portfolio for its target market enabled the firm to achieve margins expansion in 2015 while an excellent balance sheet and strong operating cash flow facilitated the opening of 11 stores last year. Maintain BUY and IDR19,250 TP (19% upside), which implies 27x/23x 2016F/2017F P/Es.
The likely winner
Despite the increased competition coming from more foreign players entering into the domestic department store space, we believe Matahari Department Store (Matahari) would remain the market winner. This is because the company’s strong private brands portfolio for its middle income target segment has enabled it to achieve margin expansions in 2015.
Meanwhile, Matahari’s excellent balance sheet and strong operating cash flow also allowed the company to open 11 new stores last year. This makes Matahari well positioned to take advantage of Indonesia’s continuing economic recovery.
Key downside risks
A slower-than-expected opening of new stores before the Lebaran festivities this year is likely to jeopardise Matahari’s earnings growth for 2016. Lower consumer purchasing power would also result in lower-than-expected same-store sales growth (SSSG) this year.
Maintain BUY
We retain our BUY call on Matahari, as the company is the best department store operator in Indonesia with a clear middle income target segment. Our DCF-based TP of IDR19,250 (19% upside) is based on 13.2% WACC and 3% TG.
Performance Review
The most well-managed department store chain in Indonesia. Despite the weak economy in 2015, Matahari managed to open 11 new stores. It was also able to achieve full-year gross margins expansion of 40bps YoY due to its strong direct purchase items. The latter accounted for 36% of gross sales in FY15 vs 34% in FY14.
Strong rebound in 4Q15 SSSG
A stronger economy and more spending on infrastructure by the Government in 4Q15 did enhance the purchasing power of the middle income segment. This was reflected in the strong 7.6% SSSG in this quarter (vs -0.1% in 3Q15), which yielded a full-year SSSG of 6.8%. It is encouraging to know that 5.3% of the 7.6% came from sales volume. This shows that Matahari’s customers have started purchasing again due to optimism in the economy.
10% stake in MatahariMall.com
Matahari already has a 10% stake in MatahariMall.com, in which it has complete control of the pricing of its well-accepted, award-winning private brands.
